freee K.K.

The pace of technological innovation surrounding cloud services is rapid, and if the Group is slow to acquire advanced technical know-how or if competitors develop superior services, this could lead to a decline in competitiveness, service quality, and industry standing. In addition, regulatory changes in accounting, tax, and HR-related areas may necessitate significant service modifications or delay product launches. As countermeasures, the Group is advancing engineer recruitment and development and building a creative development environment, but this also entails risks of increased additional system investment and personnel costs.

In addition to competition with cloud accounting and HR/labor service providers and traditional software vendors, there is a risk of intensifying competition due to an increasing number of new entrants into the rapidly expanding cloud-related market. If competitors enhance their competitiveness or new entrants emerge such that the Group's services can no longer maintain their competitive advantage, reputation, and reliability, this could impact the Group's business and financial results. The Group is responding through service provision leveraging its proprietary development know-how and strategic initiatives to acquire new customers.

For the Group, which adopts a subscription-based recurring revenue model, maintaining the retention rate of existing customers and increasing unit prices are fundamental to growth. There is a risk that a decline in service appeal or customer attrition to competitors could result in a retention rate significantly below expectations. In addition, stagnation in customer companies' business growth or weak acquisition of mid-sized customers could prevent the anticipated increase in ARPU or unit price growth through upselling and cross-selling. If these factors occur simultaneously, the impact on business results is expected to be significant.

The Group has adopted a business model involving upfront investment in R&D and advertising expenses, and although it achieved profitability in FY2025 (ended June 2025), it intends to continue such upfront investment going forward. If a sudden change in the business environment or the materialization of other risks prevents the upfront investment from producing the expected results, the anticipated improvement in adjusted operating margin and adjusted free cash flow margin may not be achieved, potentially impacting business results. The Group strives to improve operational efficiency using LTV/CAC and Net Revenue Retention Rate as key indicators.

The Group positions expansion into new business areas such as fintech and M&A as part of its growth strategy, but there are risks of poor monetization in new fields and the need to comply with new regulations. In M&A transactions, limitations in due diligence may give rise to new legal or business risk factors, and if the expected synergies or investment returns are not realized, impairment losses on held investment securities, goodwill, and other assets may occur, impacting business results. The Group's policy is to reduce risk through thorough examination of synergies and risks when undertaking capital alliances and M&A transactions.

The Group handles confidential information and personal data of numerous client companies, and if an information leak were to occur, this could lead to administrative guidance, administrative sanctions, damage claims, and loss of social trust. Although the Group has implemented multi-layered countermeasures, including obtaining a SOC1 Type2 report, PCI-DSS certification, TRUSTe certification, and establishing a dedicated information security team, it remains difficult to completely eliminate the risk of external leakage despite these measures. In addition, stricter regulations on information assets could result in service suspension or restrictions on the utilization of information.

The Company is registered as an electronic payment services provider (Kanto Local Finance Bureau (Denshi Kessai Dairi) No. 1) and as a financial services intermediary (Kanto Local Finance Bureau (Kinyu Service) No. 17), and its subsidiary freee Sogyo Yushi Support Co., Ltd. is registered as a money lender (valid until February 27, 2028). If violations of laws related to these registrations result in administrative dispositions such as business improvement orders or revocation of registration, this could seriously impede business continuity. Tightening of regulations due to changes in social conditions is also recognized as a risk that could hinder business development, and the Group has established an internal management system to ensure legal compliance.

The Group's services are provided on AWS, making the stable operation of AWS a critical matter for business operations. If services were to be suspended due to system errors, natural disasters, cyberattacks, or termination of the contract with AWS, this could impact the Group's business and financial results through damage to customers, additional cost burdens, and brand damage. The Group addresses this through a continuous monitoring system, utilization of multiple availability zones, and ensuring safety in compliance with FISC security standards, but risks from unforeseen events remain.

The Group's services utilize account synchronization (account aggregation) with financial institutions, API data integration with third-party software, and collaboration with accounting firms and financial institutions as important functions and customer acquisition channels. If the license for electronic payment services were revoked, contracts with financial institutions could not be maintained, or partnerships were dissolved due to deteriorating relationships with partner companies, this could result in a decline in service functionality and reduced customer acquisition capability. The Group is working to diversify its partners and enhance its customer base and service functions in order to reduce dependence on specific partners.

As of the end of FY2025 (ended June 2025), the Group has tax loss carryforwards, and if business results continue to progress favorably and these carryforwards are exhausted, corporate tax, resident tax, and business tax will be recorded at normal tax rates, potentially impacting cash flow. The timing at which the effective tax burden becomes apparent during the growth phase following the achievement of profitability is a financial inflection point that investors should monitor closely. Currently, the tax burden is being suppressed through the utilization of tax loss carryforwards.